H McKee Stewart Jr

Musings on Business, Finance, and Economcs.

Why You Might Not Want to Invest on the Motley Fool’s Advice

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There’s a lot to be said about the MF’s approach to investing. And then they wandered into my domain. LTL Freight with this bit of “reportage”. Nothing’s glaringly wrong with the piece – unless you have some understanding of the trucking marketplace, and the relatively trivial roles that FedEx Freight and UPS Freight play in the overall structure of their companies, or have some clue as to how freight rates actually work.

If you have that background, you might well wonder what MFs industry advice is actually worth, since at least in this case, it just sounds like some guy who’s skimmed a couple of 10-Qs, put up a post, and then went back to the X box in his basement. Which ought to lead one to be hesitant about placing real investment dollars on specific MF recommendations…  As you would on anyone’s recommendations, perform your  due diligence, but I’d ramp it up a bit for any of the MF’s recommendations where I wasn’t well versed on the industry.

FedEx freight  – as grouped on their 2010 annual report – represents about 12.4% of total FedEx revenue. UPS Freight (LTL only) is only about 4.4% of UPS’ revenues, based on the first half of 2011. So, freight is a much more significant part of FedEx than for UPS, but neither corporation is going under because of the performance of their LTL freight division.

Keep in mind that probably well less than 40% is moving on current rates with these carriers (the actual number may be in the 20-25% range; LTL carriers have been training their customers to get off of current tariff rates for years), and the fact that they will have to discount some portion of this increase away in order to keep freight on their trucks, the net effect on FedEx might not be much more than the money that Fred Smith could find simply by looking under the sofa cushions for change that’s fallen out of his pockets over the years.


Written by hmstewartjr

11 August 2011 at 4:15 PM

Posted in Uncategorized

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